Fifth Third Sells Insurance Unit To Hub

As banking companies from coast to coast buy agencies to get into the property/casualty insurance business, Fifth Third Bancorp, for one, is getting out.In late December, the Cincinnati-based regional banking company announced it agreed to sell its property/casualty insurance operation to Hub International Ltd., an insurance agency based in Chicago, for an undisclosed amount of cash.

Though Fifth Third is the first major bank with an insurance agency unit to become a seller, industry observers said the deal came as no surprise because they did not think the company was committed to the product line in the first place.

As part of the deal, Fifth Third will retain some of the agency's life and title insurance businesses.

Focus on banking

Fifth Third said in a press release it is selling the agency because it wants to focus on its core banking business.

Fifth Third will continue to refer customers to the agency, but the financial details of such referrals are not yet determined, according to Martin P. Hughes, Hub's chairman and chief executive officer.

Hughes says that insurance "wasn't a core business" for Fifth Third, "and so it just didn't fit in with their future plans."

Fifth Third's insurance operation is unusual in the sense that the company never made a strategic decision to enter the business as so many other banking companies have done, industry observers said.

In early 2000, Fifth Third bought CNB Bancshares of Evansville, Ind., a banking company whose holdings included Civitas Insurance Inc., an agency with $11 million of revenues that became Fifth Third Insurance Services Inc.

Then in the second quarter of 2001, Fifth Third acquired Old Kent Financial Group, a $22.5 billion-asset banking company in Grand Rapids, Mich., which had an agency with $16 million of annual revenue.

Suddenly, Fifth Third found itself in the top 10 of banks in insurance.

"It's been fairly common knowledge that they've questioned their long-term interest in insurance since the beginning," says John Wepler, an executive vice president of the Concord, Ohio, consulting firm Marsh, Berry & Co. "There's been speculation for years and years as to when they were going to sell their insurance agency."

Since the Old Kent merger, he adds, Fifth Third had made no insurance acquisitions at all. "Just look at how many deals they've closed. The proof is in the activity, not in what they say."

Though many banks are eager to own agencies, "there are people who find the operational difficulties of owning a brokerage a pain in the neck," says Craig Whitehead, a senior consultant at Milliman USA in Chicago.

No other bank he knows of has sold its insurance agency subsidiary, Whitehead adds, and this deal was probably "a matter of priorities-a sign of a bank that needs to focus itself on banking."

Perfect timing

Wepler says Hub is the perfect buyer for Fifth Third's operation, not least because it is not a banking company itself.

"The problem with bank-owned agencies when they want to sell is that they've got commingled customers. A customer of Fifth Third Insurance is in many cases also a customer of Fifth Third banking, or Fifth Third trust," Wepler says. "If they sell that agency to another bank, then all of a sudden that bank would have access to those banking customers."

The timing is also ripe to sell an agency, he adds. Because the hard market for property/casualty insurance means rates-and agent commissions-are rising, "right now agency valuation is at a fairly high point," Wepler says. "If they were ever going to sell, it would make the most sense to sell it when the value is high."

This article first appeared in American Banker, a Thomson Media publication. It has been edited for this publication.